For Vietnam, Trade Competitiveness Much More than a Slogan

Submitted by Luis Blancas
On Wed, 02/19/2014

[1]Vietnam is one of the world's development success stories. It is undeniable.

Between 1990 and 2010, Vietnam grew at an average annual rate of 7.4 percent—one of the world’s top five growth performance records, anywhere, over the same 20-year period. In the process, the incidence of poverty has declined dramatically, from 58 percent in 1993 to about 10 percent today. Nowadays Vietnam is no longer considered a low-income country: it has attained lower-middle income status.

Yet this successful economic transition has also generated a number of challenges. Chief among them is that of sustaining economic growth going forward.

While the country just announced a record 30-day trade surplus[2]—US$1.4 billion—in January, its economy has only been growing at a fraction of its past long-term rate. Many of the key drivers that facilitated economic growth in the past—such as a shift from low-productivity subsistence agriculture towards (basic at first, but increasingly complex) manufacturing and more mechanized primary sector production, as well as a rapidly growing labor force—are now being depleted and need to be replaced with new sources of productivity growth.

The country has made tremendous progress towards providing basic transport infrastructure. The Bank has played a key role in supporting the country's efforts to improve rural and inter-city roads, urban roads, road safety, inland and coastal waterways[5], ports, and, more recently, expressways and public-private partnerships. The manufacturing and complementary economic activity that Vietnam has attracted, particularly over the past 10 years, demand that a more focused effort be made towards not only improving transportation infrastructure, but also service provision, institutional capacity, and the regulatory environment.

In the words of H. E. Mr. Bùi Quang Vinh, Vietnam's Minister of Planning and Investment, in his visit to the Bank last summer, "The old economic structure is no longer relevant: Vietnam needs to improve its competitiveness[6], facilitate stronger levels of creativity in economic production, and recognize that in a Vietnamese economy that is increasingly open and integrated to the global economy, the low hanging fruits have nearly been harvested."

As the value content of goods produced in Vietnam continues to increase, the logistics intensity of these goods increases. This results in greater need for predictability in supply chains—a key driver of trade competitiveness. [7]

At the same time, Vietnam continues to have an enormous need for infrastructure. In a country of 90 million people, it has fewer than 200 kilometers of operational international-standard expressways, as just one example. Transporting the construction materials, such as sand and cement, required to build this new infrastructure demands a well-funded, economically and environmentally efficient inland waterway sector.

Promoting lower-emission modes like inland and coastal waterway[8] transport is also attractive given the fact that Vietnam is among the countries in the world most exposed to the risks of climate change, such as sea level rise and more erratic weather patterns. Bank research on the inland waterway sector has assessed the economic viability, inclusive of the value of reducing the emission of carbon dioxide and other local pollutants, of a number of potential interventions and has made recommendations that can improve transport efficiency.

The Bank's work suggests priority areas where policy reform can bring about significant impact in competitiveness. These include the minimization of paper-based processes in the customs and technical clearance of imports and exports; the definition and integrated management of multimodal logistics corridors; the overhaul of supply-demand planning in the deep-water port sector, including hinterland connectivity; the modernization, through regulatory and other measures, of the trucking and freight forwarding industries; and the expansion of the main waterway corridors to allow for the navigation of vessels of 1,000 deadweight tons in capacity or higher.

The fact that last month saw Vietnam's largest ever 30-day trade surplus underscores how critical trade competitiveness is for the country's future growth trajectory. But it also underscores the increasingly urgent need for Vietnam to move to the proverbial next level when it comes to logistics and transportation—a level where high-quality infrastructure must not only be well aligned with demand, but also well-coordinated with better service provision and institutional strengthening.

In middle-income Vietnam complexity has risen, but so have the potential benefits of meeting it.